Write a 4 page letter to Kate and Sam Smith which:

a. Walks them through their current year tax return.Detail which expenses they incurred that were nondeductible for tax purposes, and explain why.

b. Looks forward to the next tax year.

i. Regarding the investment opportunities you calculated in week 1, explain:

1. Which investment opportunity you would recommend.

2. What the conversion tax planning strategy is, and which of these investments employ this strategy.

3. How implicit taxes may limit the benefits of the conversion strategy.

ii. Jonathan Smith will be headed to college in the fall, provide an overview of the various education tax credits they may be able to take advantage of on next years return.

WRITING REQUIREMENTS:

• The letter should be 4 pages in length. Include the Excel spreadsheet which calculates the annual after-tax rate of returns.
• • The Smith Family have been tax clients for years so the tone of letter should be positive and helpful.
• All sources used are to be submitted in APA format.
• Please use the writing center if needed.

Form 1040 2016 (99) Department of the TreasuryInternal Revenue Service U.S. Individual Income Tax Return OMB No. 1545-0074 , 2016, ending IRS Use OnlyDo not write or staple in this space. See separate instructions. For the year Jan. 1-Dec. 31, 2016, or other tax year beginning Your first name and initial Last name , 20 Your social security number Kate Smith 5 5 5 5 5 5 5 5 5 Sam Smith Spouse's social security number Last name If a joint return, spouse's first name and initial 4 4 4 4 4 4 4 4 4 Apt. no. Home address (number and street). If you have a P.O. box, see instructions. 33 Oak Street Drive City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking Foreign postal code a box below will not change your tax or refund. You Spouse San Diego, California 91911 Foreign country name Filing Status Check only one box. Exemptions Foreign province/state/county 1 2 3 6a b c Income Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a W-2, see instructions. Adjusted Gross Income child's name here. 5 Qualifying widow(er) with dependent child Yourself. If someone can claim you as a dependent, do not check box 6a . Spouse . Dependents: . . . . . . . . . . . (2) Dependent's social security number Last name Elizabeth Smith Jonathan Smith d Head of household (with qualifying person). (See instructions.) If the qualifying person is a child but not your dependent, enter this Married filing separately. Enter spouse's SSN above and full name here. (1) First name If more than four dependents, see instructions and check here 4 Single Married filing jointly (even if only one had income) Total number of exemptions claimed . . . . . . . . . . . . . . . . . . . } (4) if child under age 17 qualifying for child tax credit (see instructions) (3) Dependent's relationship to you 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 daughter Son . . . . . . . . . . . . . . . . . . 7 . 8b . . . . . . . . . 8a . . . . . . . 9a 10 11 Qualified dividends . . . . . . . . . . . 9b Taxable refunds, credits, or offsets of state and local income taxes Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11 12 13 14 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . Capital gain or (loss). Attach Schedule D if required. If not required, check here Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 12 13 14 15a 16a 17 IRA distributions . 15a b Taxable amount . . . Pensions and annuities 16a b Taxable amount . . . Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 15b 16b 17 18 19 20a Farm income or (loss). Attach Schedule F . Unemployment compensation . . . . Social security benefits 20a 18 19 20b 21 22 Other income. List type and amount Combine the amounts in the far right column for lines 7 through 21. This is your total income 23 Educator expenses 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 25 Health savings account deduction. Attach Form 8889 . 24 25 26 27 28 Moving expenses. Attach Form 3903 . . . . . . Deductible part of self-employment tax. Attach Schedule SE . Self-employed SEP, SIMPLE, and qualified plans . . 26 27 28 29 30 31a Self-employed health insurance deduction Penalty on early withdrawal of savings . . . . . . . . . . 32 33 34 Alimony paid b Recipient's SSN IRA deduction . . . . . . . Student loan interest deduction . . Tuition and fees. Attach Form 8917 . 29 30 31a . . . . . . . . . . . . 32 33 34 35 36 37 Domestic production activities deduction. Attach Form 8903 35 Add lines 23 through 35 . . . . . . . . . . . . . Subtract line 36 from line 22. This is your adjusted gross income Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . 8a b 9a Taxable interest. Attach Schedule B if required . Tax-exempt interest. Do not include on line 8a . Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Dependents on 6c not entered above . 7 Boxes checked on 6a and 6b No. of children on 6c who: lived with you did not live with you due to divorce or separation (see instructions) . b Make sure the SSN(s) above and on line 6c are correct. . . . . . . . . . . . . b Taxable amount . . . . . . . . . . . . Add numbers on lines above 4 185300 21 22 185300 36 37 3775 181525 23 2925 850 . . For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. . . . . . . . . . Cat. No. 11320B Form 1040 (2016) Page 2 Form 1040 (2016) 38 Amount from line 37 (adjusted gross income) Tax and Credits 39a Check if: Standard Deduction for People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. All others: Single or Married filing separately, $6,300 Married filing jointly or Qualifying widow(er), $12,600 Head of household, $9,300 . . Other Taxes 58 59 60a Unreported social security and Medicare tax from Form: a b 61 First-time homebuyer credit repayment. Attach Form 5405 if required 62 63 Form 8960 c Taxes from: a Form 8959 b Add lines 56 through 62. This is your total tax . . Payments If you have a qualifying child, attach Schedule EIC. . . You were born before January 2, 1952, Spouse was born before January 2, 1952, . . Blind. Blind. . } . . . . . . 39b . . 42 43 Exemptions. If line 38 is $155,650 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . Form 4972 c Tax (see instructions). Check if any from: a Form(s) 8814 b 44 45 46 47 48 49 50 51 52 53 54 55 56 57 64 65 66a b 67 68 69 70 71 72 75 76a Alternative minimum tax (see instructions). Attach Form 6251 . Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . . . . . . . . 48 . . . . . . 52 Residential energy credits. Attach Form 5695 . . . . 53 3800 b 8801 c Other credits from Form: a 54 Add lines 48 through 54. These are your total credits . . . . . Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . . . . . . . Self-employment tax. Attach Schedule SE . . . . Add lines 44, 45, and 46 . . . . . . . Foreign tax credit. Attach Form 1116 if required . . . . . . . . . . . . . . . . . . Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . . . . . . . . . . Instructions; enter code(s) . . . . . . . . . . 64 Federal income tax withheld from Forms W-2 and 1099 . . 2016 estimated tax payments and amount applied from 2015 return 65 Earned income credit (EIC) . . . . . . . . . . 66a . . . . . b 4137 . . . . . . . . . . . . . 67 American opportunity credit from Form 8863, line 8 . Net premium tax credit. Attach Form 8962 . . . . Amount paid with request for extension to file . . . . . . . . . 68 69 70 . 71 72 Credits from Form: a 2439 b Reserved c 8885 d 73 Add lines 64, 65, 66a, and 67 through 73. These are your total payments . Excess social security and tier 1 RRTA tax withheld Credit for federal tax on fuels. Attach Form 4136 . . Full-year coverage Health care: individual responsibility (see instructions) Nontaxable combat pay election 66b Additional child tax credit. Attach Schedule 8812 . . . . . . . 8919 Household employment taxes from Schedule H . . . . . . . 181525 40 41 42 165075 0 43 165075 44 45 46 47 23681 55 56 57 0 23681 16450 49 50 51 Credit for child and dependent care expenses. Attach Form 2441 Education credits from Form 8863, line 19 . . . . . Retirement savings contributions credit. Attach Form 8880 Child tax credit. Attach Schedule 8812, if required . . . . 38 Total boxes checked 39a Itemized deductions (from Schedule A) or your standard deduction (see left margin) Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . 58 59 60a 60b 61 62 . 63 0 . 74 0 . . . . . If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 75 Amount of line 75 you want refunded to you. If Form 8888 is attached, check here . 76a c Type: Routing number Checking Savings Account number Amount of line 75 you want applied to your 2017 estimated tax 77 77 78 Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions 78 23681 79 Estimated tax penalty (see instructions) . . . . . . . 79 Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No Third Party Designee . 40 41 Direct deposit? See instructions. Amount You Owe . If your spouse itemizes on a separate return or you were a dual-status alien, check here b 73 74 Refund { . b d Personal identification number (PIN) Phone no. Designee's name Sign Here Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Joint return? See instructions. Keep a copy for your records. Paid Preparer Use Only Your signature Date Your occupation Daytime phone number Spouse's signature. If a joint return, both must sign. Date Spouse's occupation If the IRS sent you an Identity Protection PIN, enter it here (see inst.) PTIN Check if self-employed Print/Type preparer's name Firm's name Preparer's signature Date Firm's EIN Firm's address Phone no. www.irs.gov/form1040 Form 1040 (2016) SCHEDULE A (Form 1040) OMB No. 1545-0074 Itemized Deductions Department of the Treasury Internal Revenue Service (99) Information about Schedule A and its separate instructions is at www.irs.gov/schedulea. Attach to Form 1040. Name(s) shown on Form 1040 2016 Attachment Sequence No. 07 Your social security number Kate Smith And Sam Smith Medical and Dental Expenses Taxes You Paid Interest You Paid Note: Your mortgage interest deduction may be limited (see instructions). 555-55-5555 Caution: Do not include expenses reimbursed or paid by others. 1 Medical and dental expenses (see instructions) . . . . . 1 181525 2 Enter amount from Form 1040, line 38 2 3 Multiply line 2 by 10% (0.10). But if either you or your spouse was born before January 2, 1952, multiply line 2 by 7.5% (0.075) instead 3 4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . 5 State and local (check only one box): a Income taxes, or . . . . . . . . . . . 5 b General sales taxes 6 Real estate taxes (see instructions) . . . . . . . . . 6 7 Personal property taxes . . . . . . . . . . . . . 7 8 Other taxes. List type and amount 8 9 Add lines 5 through 8 . . . . . . . . . . . . . . . . 10 Home mortgage interest and points reported to you on Form 1098 10 11 Home mortgage interest not reported to you on Form 1098. If paid to the person from whom you bought the home, see instructions and show that person's name, identifying no., and address 18153 . . . . . . 4 0 9 2500 15 12000 1950 } 11 12 Points not reported to you on Form 1098. See instructions for special rules . . . . . . . . . . . . . . . . . 12 13 Mortgage insurance premiums (see instructions) . . . . . 13 14 Investment interest. Attach Form 4952 if required. (See instructions.) 14 15 Add lines 10 through 14 . . . . . . . . . . . . . . . Gifts to 16 Gifts by cash or check. If you made any gift of $250 or more, see instructions . . . . . . . . . . . . . . . . 16 Charity 17 Other than by cash or check. If any gift of $250 or more, see If you made a gift and got a instructions. You must attach Form 8283 if over $500 . . . 17 benefit for it, 18 Carryover from prior year . . . . . . . . . . . . 18 see instructions. 19 Add lines 16 through 18 . . . . . . . . . . . . . . . Casualty and Theft Losses 7000 20 Casualty or theft loss(es). Attach Form 4684. (See instructions.) . . 2500 . . . . . . 12000 . . . . . . 1500 450 . . . . . . 19 . . . . . . 20 Job Expenses 21 Unreimbursed employee expensesjob travel, union dues, and Certain job education, etc. Attach Form 2106 or 2106-EZ if required. Miscellaneous 21 (See instructions.) Deductions 22 Tax preparation fees . . . . . . . . . . . . . 22 250 23 Other expensesinvestment, safe deposit box, etc. List type and amount Union dues Other Miscellaneous Deductions 24 25 26 27 28 23 Add lines 21 through 23 . . . . . . . . . . . . 24 181525 Enter amount from Form 1040, line 38 25 Multiply line 25 by 2% (0.02) . . . . . . . . . . 26 Subtract line 26 from line 24. If line 26 is more than line 24, enter -0- . Otherfrom list in instructions. List type and amount 200 450 3630 . . . . . 27 0 28 29 Is Form 1040, line 38, over $155,650? Total Itemized No. Your deduction is not limited. Add the amounts in the far right column for lines 4 through 28. Also, enter this amount on Form 1040, line 40. Deductions } . Yes. Your deduction may be limited. See the Itemized Deductions Worksheet in the instructions to figure the amount to enter. 30 If you elect to itemize deductions even though they are less than your standard deduction, check here . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 17145C . 29 16450 Schedule A (Form 1040) 2016 Name: Kate and Sam Smith Investment Opportunities Here are the three different investment opportunities you have identified for the Smiths, all with th 1. Taxable corporate bonds that pay 4.75 percent interest annual 2. A high-dividend stock that pays 4 percent dividends annually b 3. Tax-exempt municipal bonds that pay 3.5 percent annually. Kate and Sam have a marginal tax rate of 30 percent (capital gains rate of 15 percent). Investment Choice 1. Corporate Bond 2. High-dividend stock 3. Municipal bond Here are the three basic tax planning strategies, and the features of taxation each of them exploit The three basis tax planing strategies are Timing, Income Shifting, Conversion Strategies. Timing, just like in the time value of money even timing of tax beign levied is to be considered. We need to decide whether to pay taxe tomorrow. if tax rates are constant, pay more tax now and less in coming years and if tax rates are increasing we decide to pay more taxes now and if they are decrease pay more taxes in future. Income Shifting, We can shigt form a high tax paying person to a low tax paying person. from high tax paying parent to low tax paying childer business to business owner from one country to another country. Coversion Startegies, Involves adjusting speci Ex. between wages and dividends or between individuals and business expenses. ave identified for the Smiths, all with the same amount of risk: s that pay 4.75 percent interest annually. hat pays 4 percent dividends annually but has no appreciation potential. onds that pay 3.5 percent annually. gains rate of 15 percent). Computation 200000*4.75%*(1-0.3) 200,000*4%(1-0.15) 200,000*3.5% atures of taxation each of them exploits: ing, Conversion Strategies. Timing, just like in the case of onsidered. We need to decide whether to pay taxes today or s in coming years and if tax rates are increasing we must ore taxes in future. Income Shifting, We can shigt the income m high tax paying parent to low tax paying childer and from ntry. Coversion Startegies, Involves adjusting specific activities. business expenses. After-Tax Return 6650 6800 7000